A “secular increase” in African public debt has brought several governments towards a debt-servicing threshold beyond which they should not borrow, said Patrick Njoroge, governor of the central bank of Kenya.
While Mr Njoroge said that while debt levels, including in Kenya, were sustainable, he feared “shocks that could push us over”. Taking on debt was a “temporary manoeuvre”, he said in an interview with the Financial Times. “We cannot continue with this financing model.”
Citing what he said was an extremely risky international environment — including threats to market access to post-Brexit Britain and Donald Trump’s America as well as currency and interest-rate movements — the governor said African governments should look for alternative sources of financing. He mentioned public-private partnerships and build-operate-transfer deals as preferable to continued borrowing.
Mr Njoroge’s warning reflects steadily building concerns that some African governments — beneficiaries of big debt write-offs at the start of the century — have taken to private debt markets too eagerly, leaving them with heavy repayment schedules at a time of lower commodity prices. In some cases, debt-service worries have been exacerbated by weakening currencies, increasing payments in dollar-denominated loans.
Between 2010 and 2015, countries including Angola, Ethiopia, Ghana, Ivory Coast, Kenya, Namibia, Nigeria, Rwanda, Tanzania and Zambia raised commercial debt totalling more than $20bn, economists said. Back then, said Mr Njoroge, with commodity prices soaring and foreign money available for “zilch”, the consensus was to load up on commercial debt.
Until recently, the IMF has played down African debt concerns, pointing to better management of public resources and greater transparency. But its confidence has faltered as debt continues to inch up. It may also have been shaken by Mozambique’s default on more than $2bn of secret loans used to purchase a non-existent tuna-fishing fleet, raising fears of hidden debt in other African countries with opaque decision-making processes.
Last week, during the annual IMF meetings in Washington, Abebe Selassie, director for Africa, warned that the median level of debt in sub-Saharan Africa had risen sharply from 34 per cent of gross domestic product in 2013 to 48 per cent. Most of the “pronounced increase” in debt had happened in oil-exporting counties following a deterioration in their economic conditions, he said.
Several countries, including Ethiopia, Ghana and Zambia, have debt levels at or above 50 per cent of GDP. Although that is fairly low by international standards, analysts said debt burdens were heavier than they appeared because of most African countries’ low tax base.
“The real thing to look for is debt to revenue, or debt-service as a percentage of government spending,” said John Ashbourne, Africa Economist at Capital Economics. In several countries, he said, debt payments were above 20 per cent of government revenue. “Although that’s affordable, it’s crowding out spending,” he said, referring to public investment.
Ghana, which in 2007 became one of the first African countries to raise international money, saw its debt rise to 73 per cent of GDP last year. In an interview in Washington, Ken Ofori-Atta, the finance minister, said this had now come down to 68 per cent thanks to fast growth in the first half. Mr Ofori-Atta said the new government, elected last December, had been faced with a worse public finance position than it had expected, although he thought prudent management and higher oil production meant it could avoid a “debt crunch”.
Nigeria, where non-oil state revenue is minimal, has a very low debt-to-GDP ratio of below 15 per cent, but has seen debt-service payments soar to nearly 40 per cent of federal government revenue this year. “That’s a truly awful number,” said Mr Ashbourne, although he thought that Abuja would avoid a crisis.
Nigeria has been seeking to cut its debt-service bill by converting mainly local debt into cheaper foreign borrowing. This year it has tapped international markets for $1.5bn — paying below 8 per cent for 15-year debt — and is seeking to borrow as much as $5.5bn more in the rest of the year.
Paul Collier, professor of economics at Oxford university, said it was important to distinguish between governments that had borrowed to fund capital investment and those that had gone into debt to plug recurring expenditure. Although he did not name particular countries, analysts say Ghana and Zambia borrowed to fund civil servants’ pay while Ethiopia, Kenya and Rwanda raised debt to pay for infrastructure of varying quality.
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